Acquisitions Open New Chapter for KPMG in IT Consultancy

At the end of last year, KPMG made a number of moves in the IT space, which I felt laid down a significant pointer in terms of the direction the firm was moving. One of these was the acquisition of IT advisory firm Xantus, who I’d spoken to in the past. I recently caught up with Steve Watmough, founder of Xantus and now Head of CIO Advisory at KPMG in the UK to look into the deal a bit more deeply.

The history of the Big Four consultancy brands and IT is a long and tortuous one. From being major competitors to the outsourcing and systems integration players, most of them made a precipitous exit from IT consultancy in the early 2000s.

“They separated off their consultancy services and sold them off to the outsourcing providers,” says Watmough. “So if you were in the market for advice you had to go to one of those big providers—that created the opportunity for a specific play in the end user advisory space.”

This vacuum enabled Xantus to quickly grow to over 100 fee earners, although Watmough says that even from the start the firm never presented itself as a small consultancy:

“At Xantus our motive was to build a great advisory business so we ran it as if it was a much larger organisation, he says. “What we did was build a specific brand that was very relevant to large corporations, in a space that was more appropriate to bigger brands.”

Having established Xantus in the UK the next obvious step was to take the concept overseas:

“We’d done the proof of concept, now we needed to give it a global platform,” says Watmough. “There was a need to address global needs, but that would take resource out of the UK and there was also the challenge of brand — we felt there was space for brand in this.

The obvious route was to look for an established global partner. While a sale to an established IT or outsourcing player would undermine the concept, from the KMPG point of view the Xantus approach tied in very strongly with the “client side advisory” story that the firm has been building since it re-entered the consultancy market:

“There was a very interesting fit in terms of the spaces that KPMG needed to be stronger in,” says Watmough. “They’d already built a strong IT capability in terms of very successful programme assurance, risk and security based work, as well as compliance. What Xantus offered was real strength in strategic advisory services to the IT and CIO community.”

There was also a recognition that KPMG’s existing strength in areas such as financial services would also benefit from an improved IT capability.

“In a way this is not so much about the growth of a Big Four consultancy in an IT technology space as an indication of how much the consultancy agenda is dominated by IT,” says Watmough. “If you’re not in the IT and technology space you’ll have difficulty developing a large financial transformation, because a large part of it will be an IT play.”

There are also significant opportunities that only emerge when you look at the wider capabilities of a Big Four firm, such as tax expertise together with IT: “tax in the cloud” is one example of this.

The move also addresses the fact that while some CIOs remain very technically and departmentally focused, the current direction of travel is for them to become more central to, and focus more broadly on the business as a whole.

“In future we will see a lot of CIOs moving into COO roles,” says Watmough. He also believes that there’ll be lot of “finessing” of earlier outsourcing decisions:

“People are asking, is my supplier best in class,” he says. “They’re not necessarily going to bring things back in-house, but they re more likely to want to consider best in class and take an integration role.”

The expanded capabilities Xantus has brought to KPMG are now being rolled out across other operating countries, and Watmough says he is already seeing the effect on the recruitment

“I’m now much more able to recruit the guys who were capable of operating at this level but who might not have wanted to work for a smaller firm,” he says. “There are career opportunities to move across the firm and work in different parts of the firm, and also the opportunity to work with bigger and more interesting clients.” In essence, the acquisition has given a valuable boost to the credibility of both sides:

“We can now go back into clients and talk about that additional capability, and also the multidisciplinary nature of what we do,” says Watmough.

In addressing these opportunities KPMG will also be aided by the expertise of another acquisition from 2011, EquaTerra. Long established as a trusted advisor on the sourcing front, this acquisition spoke volumes as to where KPMG will not be going as much as its future expansion. We’ve talked a lot over the last few years about Big Four firms “rebuilding” their consultancy capability, but it’s clear now that they are moving into service areas, particularly in IT, that it would have been very different for them to offer credibly under the old disposition. That means that in future, not only can clients go to different places to talk about IT, but they can talk about it in a completely different way.

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